There are a few signs of a bubble, but housing still appears to be on solid footing

A home in New Hampshire.
Wikimedia Commons
In 2013, fresh off the biggest housing downturn in their lifetimes, 73 housing industry executives compiled the Top 10 Signs of a Housing Market Bubble. We mailed each a poster for their walls, and we mark our poster when we see the signs. Nationwide, few signs are forming, but we are seeing four of the ten qualitative bubble signs in a few of the hottest housing markets:

Truck stop feasibility. Our Northern California consultant Dean Wehrli has been doing studies in what the executives called "truck stop" cities, targeting the extreme "drive until you qualify" home buyer.

Falling builder stock prices. Home builder stock prices have fallen more than the overall market, with five of the 12 largest builders now trading below book value (what they paid for their assets). While stocks have historically fallen in advance of a downturn, they have also created many, many false alarms, so this is not a sure sign of a downturn.

Creative mortgages. We know of one firm that is now making interest-only loans with no FICO score requirements in the San Francisco Bay Area, and we've heard of a hedge fund raising $4 billion to provide the 5% retention capital for $80 billion of non-QM mortgages (arguably the new name for subprime). In the last cycle, creative mortgages started as relatively safe risk-adjusted loans but morphed into much higher risk/return ratios in an effort to keep the business growing.

The executives also identified ten quantitative signs of a bubble, as shown in the graphic below. Overall, while a few bubble signs exist in a few markets, housing appears to be on solid footing in most markets heading into 2016. Check the list below regularly as a reality check.